By Davit Kirakosyan
Jefferies reiterated a Buy rating and $250.00 price target on Salesforce (NYSE:CRM), noting it sees the company as a $10-12 earnings story in 2025 and 2026.
The firm believes that salesforce can drive more margin upside over time while sustaining equivalent top-line growth. It estimates 12% CAGR (2022-2025), above the Street estimate of 11.5%.
The firm highlighted 3 drivers of growth: (1) Large TAM of $200 billion+ today growing 13% CAGR to $330B by 2026. Street estimates imply the company will lose market share through 2026, which Jefferies finds unlikely; (2) the company can drive 50% more ARR within its install base by driving multi-cloud adoption. 80% of customers (15% of ARR) have less than 4 Clouds out of 10 Clouds; (3) International Expansion. “32% rev. came from int'l in CY'22 vs peers that have 40-50% from int'l and 60% of global software spend coming from int'l markets,” said the firm.
The company’s non-GAAP operating margins at 22.5% were approximately 14 pts below large-cap peers at 36.4% in 2022. Jefferies outlined 6 levers to drive margin/EPS leverage: (1) Higher cost scrutiny. The firm sees an opportunity for cost reductions across S&M and G&A; (2) Headcount reduction. The firm views a 10% workforce reduction in early January as a step in the right direction; (3) Downsizing office space; (4) Share buybacks. The company still has $16B remaining in authorized buybacks. Jefferies estimates buybacks will likely be higher than management’s ~30-40% of FCF guide; (5) Lower dilution from M&A; (6) Lowering SBC. The company is committed to offsetting dilution from SBC and guided to SBC of approximately 9% of revenue in 2023 vs 10.4% average from 2019-2022.